Q:
I am a small business based in the U.S. We are offering procurement services for a global company. What we need to do is setup partnerships/reseller agreements with local UK training companies. Is there any way we can pass on the VAT to our client without having to register in the UK?
We are simply booking a seat in a classroom just as an airline broker/agent. Our fee is a transaction fee, is only 5-12%, we do not supply the training……I think we will be procuring over 75K gross annually, but our net income will be less.
How can we pass the VAT onto our client?
Thanks
Gary
A:
Hi Gary
Any time a VAT consultant receives a query about supplies of services involving overseas customers or suppliers, we go a bit quiet and have to think carefully about the answer because there are so many potential issues that could apply.
To start with the main principle, you are correct in thinking that the customer has to have an invoice for a supply in its own name in order to recover the VAT charged on goods or services that it has acquired. Forgive me if I’m telling you stuff you already know, but I don’t know how familiar you are with the VAT rules.
The simplest way of dealing with the situation is to ensure that the training provider issues the invoice for the supply of training to the customer and you issue your invoice for the booking fee separately. This should be possible if you are acting as disclosed agent, ie both supplier and customer know that you are acting as agent and that your service is limited to the service of booking the seat. But if you’re acting as principal or as undisclosed agent, then it wouldn’t be possible.
Agent or Principal?
This is because the VAT treatment depends whether you’re buying and selling as agent or principal for VAT purposes and how the invoicing is done. And just to make life more complicated, you can act as principal for VAT purposes if you act on behalf of the customer or supplier as undisclosed agent or if the invoices for the main supply are issued to you and by you for any other reason.
How does this work in practice? If the invoice from the training company is issued to you and doesn’t show the customer’s name, then for VAT purposes you’d be treated as buying and selling as principal. In that case the only way that you can pass the VAT charge onto your customer so that they can recover it is for you to act as undisclosed agent which means that for VAT purposes this you would be treated as principal even though you’re not a principal in contractual terms. And then the value of the training would count towards the VAT registration limit, in addition to your booking fees.
The only alternative would be to charge the customer the gross amount so that you recoup the full cost. Suppose you book a classroom seat for £200. It will be liable to VAT at 17.5% (20% from 4 Jan 2011) so the invoice from the supplier (ie the training company) will show the net of £200, VAT of £35 and gross of £235. If you’re not registered for VAT, then you can’t recover the £35 VAT, so in order to recoup the full cost that you’ve paid for the set, you’ll charge the customer £235.
Obviously, the disadvantage of this arrangement is that the customer – presumably a UK based business which is registered for VAT – doesn’t have an invoice in its name from the training company that it can use to recover the VAT.
I can’t give definitive advice in any case as I don’t know what the contractual arrangements are between you and the supplier/customers concerned, but there is more comprehensive guidance on the subject in HMRC’s VAT Notice 700: The VAT Guide, section 22 here http://tinyurl.com/2uj4f67
I suggest that you have a look at the guidance shown in the VAT guide and then let me know if you are still confused! But hopefully this will help you work out what to do.
Other issues
There are two further (and potentially complex) issues that might also apply to your business. If you start to buy and sell EC hotel accommodation, travel etc as principal, then your business might be covered by a special scheme that called the “Tour Operators Margin Scheme”. Furhter information is here http://tinyurl.com/2rbowd in HMRC’s VAT Notice 709/5.
Also, the rules relating to the supply of training and related services are covered by special “Place of Supply” rules that apply to EC business buying and selling certain supplies of services. These are explained in VAT Notice 741a: Place of Supply of Services here http://tinyurl.com/ye67t2s on the HMRC website – see section 8 which deals with services of training etc. In certain circumstances you don’t need to register if the customer can register for VAT and account for the VAT on services that you supply your behalf. However, they won’t apply if you need to be registered for VAT to ensure that your customers receive a VAT invoice, but you should be aware of the whole picture.
Marie